When you send an employee to work abroad as an expatriate employee, which company should employ him or her? Your Canadian company? The company in the country where the employee works? The parent company?

Why is this Important? 

It’s important to decide which company is the legal employer because this may determine many of the employee’s rights and entitlements, such as:

  • The length of service that will be recognized;
  • the benefit plans that will apply;
  • what corporate policies govern the employee;
  • what country’s laws apply to the employment relationship while the employee is abroad;
  • whether the employee has the right to return to his or her job in Canada;
  • the location where future disputes would be litigated or otherwise resolved; and
  • the employee’s entitlements to severance pay and other benefits upon termination.

So, it is important to be clear about which company is the legal employer. The company that is the legal employer does not necessarily have to be the company that will bear the cost of the employee. It is not uncommon for the cost to be borne by one company, normally the operating company that benefits from the employee’s service, while the person remains employed by another company. Appropriate inter-company billings or adjustments can easily be done.

How Should You Decide?

The decision of which company should be the employer is partly a human resources issue and partly a legal issue. Ask yourself these questions:

  • What set of corporate policies do you want to govern the assignment?
  • What country’s laws do you want to apply?
  • What will the employee be most comfortable with?
  • Is the employee expected to return home in the near to medium future?
  • Where would you want any dispute to be resolved?

Sometimes the answers to these questions will lead you in opposite directions. You may want the foreign company’s policies, benefit plan and bonus program to apply to the assignment, but you know the employee would be more comfortable if he or she remains an employee of the Canadian company. Or, you may want to avoid some of the more onerous obligations of being a European employer, but you don’t expect the employee to return to Canada in the foreseeable future. What should you do?

It is possible to address many of these issues contractually. Check the laws of the country where the assignment will occur. Find out to what extent you can contract out of coverage under that country’s laws, if you wish to do so. Then deal with discretionary issues in an employment contract.

What Should You Do?

Clearly identify who the employer will be in the offer of employment. The offer should be made by the company that will be the employer. Decide whether a full-fledged employment contract should be entered into, to not only confirm the identity of the employer, but to spell out all of the related issues. If possible, pay and benefits should be provided by the employing company. Otherwise, advise the employee in writing that the payor company is acting as the agent of the employing company.

  • Tell the employee that the policies, programs and rules of the employing company will generally apply. Be specific about any exceptions.
  • Ensure the employing company is identified correctly on any visa application or other visa paperwork prepared by or for the employee.
  • Be clear with the employee about whether or not the assignment is permanent. If not, set out what will happen when the assignment ends.
  • Ensure the administration of benefits and other programs is consistent with your decision about who the employer is.
  • Stipulate in the offer of employment or contract which country’s laws apply.
  • Consider including a dispute resolution clause, so that you are clear about where and how disputes will be resolved.
  • McCarthy Tétrault has a great deal of experience in dealing with international employment arrangements. We can assist you in sorting through this complex set of issues.